Final consumer prices for July saw no change from the consensus, coming in at 0.4 percent month-on-month and 1.7 percent year-over year. It is up 0.2 percent from June's month-on-month final.

The monthly HICP declined 1.0 percent on the month, down from June's final reading. The annual rate was 1.7 percent, still below the ECB's target.

July's stable annual CPI rate was partly due to mixed results. There was quickened growth in prices of unprocessed food products (from 4.2 percent to 5.1 percent), processed food including alcohol (from 2.7 percent to 2.8 percent), services ( from 1.6 percent to 2.2 percent) and transport-related services (from 2.9 percent to 3.3 percent). This offset the decline in the prices of energy (from 22.6 percent to 17.1 percent), non-regulated energy products (from minus 4.2 percent to minus 5.2 percent) and recreation (from 3.2 percent to 2.7 percent).

Core inflation was 2.0 percent in July, same as in June. This latest update takes the RPI to minus 20 and the RPI-P to minus 23, meaning that economic activity in Italy is falling short of market expectations.

CPI expected at 0.4 percent on month and 1.7 percent on year in the July final, unrevised from the flash, showing inflation remains very restrained.

The consumer price index (CPI) is a measure of the average price level of a fixed basket of goods and services purchased by consumers. Monthly and annual changes in the CPI provide widely used measures of inflation. A provisional estimate, with limited detail, is released about two weeks before the final data are reported.

The consumer price index is the most widely followed indicator of inflation. An investor who understands how inflation influences the markets will benefit over those investors that do not understand the impact. In countries such as the Italy where monetary policy decisions rest on the central bank's inflation target, the rate of inflation directly affects all interest rates charged to business and the consumer. As a member of the European Monetary Union, Italy's interest rates are set by the European Central Bank.

Italy like other EMU countries has both a national CPI and a harmonized index of consumer prices (HICP). Components and weights within the national CPI vary from other countries, reflecting national idiosyncrasies. The core CPI, which excludes fresh food, is usually the preferred indicator of short-term inflation pressures.

Inflation is an increase in the overall prices of goods and services. The relationship between inflation and interest rates is the key to understanding how indicators such as the CPI influence the markets - and your investments. As the rate of inflation changes and as expectations on inflation change, the markets adjust interest rates. The effect ripples across stocks, bonds, commodities, and your portfolio, often in a dramatic fashion.

By tracking inflation, whether high or low, rising or falling, investors can anticipate how different types of investments will perform. Over the long run, the bond market will rally (fall) when increases in the CPI are small (large). The equity market rallies with the bond market because low inflation promises low interest rates and is good for profits.